How Blockchain Streamlines the Carbon Offsetting Process in the Automotive Industry?

In recent years, the automotive industry is stressing embracing sustainable practices and reducing its carbon footprint. One of the essential aspects of this endeavor is carbon offsetting. Today, several car vehicle manufacturers are investing in projects that can mitigate greenhouse gas emissions. However, the traditional carbon offsetting process has been plagued with numerous challenges, regarding transparency, traceability, efficiency, and verification. Fortunately, Blockchain has emerged as an exceptional solution that helps streamline the carbon offsetting process.

In this blog, we will explore the process of carbon offsetting and how Blockchain helps overcome the gaps.

What is Carbon Offsetting? 

Carbon offsetting is a practice of compensating for GHG emissions (Greenhouse gas emissions) by investing in environmental projects around the world and balancing out carbon footprints. Such projects are basically based in developing countries and designed to reduce future emissions. Carbon offsetting can be mandatory or voluntary, depending on the rules, regulations, and standards of different countries and regions.

Why is Carbon Offsetting Important for the Automotive Industry?

The automotive industry’s manufacturing & logistic operations produce GHG emissions in large quantities. The industry faces pressure from governments, consumers, investors, and other stakeholders to reduce its carbon footprint and align with the global goals of achieving net-zero emissions by 2050. Carbon offsetting has emerged as an essential tool for the automotive industry to improve its performance and reputation in terms of emission reduction.

How does Blockchain help Overcome Carbon Offsetting Process Challenges Step by Step? 

Learn how carbon emissions can be offset step-by-step-

Step 1: Calculate and Measure Emissions

Companies can use protocols to measure GHG emissions. GHG Protocol is one of the popular protocols that is an internationally recognized accounting standard that allows companies to easily measure and manage GHG emissions. The protocol divides the emissions into three areas- 

• Direct Emissions (Scope 1):  Emissions directly produced by the company’s operations.
• Indirect Emissions (Scope 2): Emissions occurred indirectly as a result of the company’s activities
• Other Emissions (Scope 3): Emissions generated from the value chain.

Challenges:

• Lack of Data Accuracy: The automotive industry’s value chain is complex and hence, gathering accurate information regarding emissions from numerous sources, including stakeholders or suppliers, can be challenging. The complexity of data collection makes it prone to errors and inaccuracy. 
• No Data Transparency: The lack of transparency throughout the emission assessment can put a question on the data authenticity and break the stakeholder’s confidence in the offsetting process. 
• No Data Security: Emission data is sensitive and requires robust security measures in order to avoid tampering and unauthorized access to data. 

How Blockchain Resolves the Challenge:

• Data Immutability: Emission data recorded on the Blockchain cannot be altered or manipulated because of the immutable and decentralized nature of the technology. It provides a safe and tamper-proof record. 
• Data Sharing and Transparency: Blockchain carbon offsetting ensures secure and transparent data sharing among stakeholders. It fosters trust and collaboration in the emission measurement process. 
• Smart Contracts: Smart contracts are self-executing agreements that can automate data collection from multiple sources and provide you with real-time access to accurate emission data. 

Step 2: Reduce Emission

Once the emissions have been calculated and measured, the next step is to focus on reducing them. This involves developing a sustainable strategy that can mitigate the carbon footprint of the automotive industry. Some common approaches include:

• Manufacturing vehicles with better fuel efficiency.
• Investing in the development of electric vehicles to reduce both direct and indirect emissions.
• Implementing eco-friendly manufacturing approaches to lower emissions from the production phase.
• Collaborating with suppliers for sustainable sourcing of materials and components.

Challenges:

• Supply Chain Complexity: Enforcing sustainable practices in the complex automotive industry is difficult as several suppliers or other stakeholders are involved.
• Lack of Traceability and Accountability: The inability to track the emission reduction across the automotive supply chain can make it challenging for suppliers to determine the actual impact of implemented strategies. 
• Incentive Mechanism: The adoption of sustainable practices among suppliers and stakeholders often required incentives which is another challenge in the automotive industry. 

How Blockchain Resolves the Challenge:

• Increased Traceability: Blockchain helps create a transparent and auditable record that enables an individual to easily trace the origin of the material and components and ensure sustainable sourcing practices. 
• Decentralized Collaboration: The technology also enables decentralized collaboration between different entities and helps establish partnerships and collective initiatives for emission reduction. 
• Tokenization and Incentive Mechanisms: Blockchain-based tokens can be used to incentivize suppliers to adopt sustainable practices. Companies can reward individuals with tokens for fostering a culture of sustainability within the industry. 

Step 3: Offset the Rest

Despite the major efforts towards emission reduction, it is often difficult for the automotive industry to mitigate its carbon footprint. Therefore, the next step is to offset the emission that cannot be reduced or removed taking into account internal measures. Some carbon offset projects in the automotive industry include afforestation and reforestation, renewable energy projects, methane capture, energy efficiency projects, etc.

Challenges: 

• Verification and Credibility: Ensuring the effectiveness and legitimacy of carbon offset projects can be difficult for automotive companies looking for reliable offsetting options. 
• Double Counting: Double counting refers to the inadvertent counting of the same emission reduction multiple times. Avoiding this issue is vital to maintain the integrity of the offsetting process.  

How Blockchain Resolves the Challenge

• Decentralized Verification: The traditional verification processes rely on centralized authorities or third-party auditors, however, Blockchain carbon offset allows for decentralized verification of carbon offset projects and offers several advantages in terms of transparency, efficiency, and trust. 
• Unique Tokens: Blockchain-based carbon credit tokenization creates unique and non-duplicable tokens that prevent the same unit from being counted multiple times.
• Smart Contracts for Transactions: Smart contracts automate the offsetting emission process and help streamline the process. When a company achieves its emission reduction targets, the corresponding carbon credits are automatically transferred to their digital wallets. 

Step 4: Resolving a Credit

After the carbon offset projects implementation, the automotive company receives carbon credits equivalent to the amount of the emissions offset. These carbon credits can further be traded on carbon markets. Companies that have exceeded their emission reduction targets can sell their surplus credits to other organizations that haven’t achieved their targets. Carbon trading creates a financial incentive for organizations that allows them to invest in emission reduction projects and contribute to sustainability goals. 

Challenges: 

• Complex Credit Trading: Traditional carbon credit trading in the automotive industry involves a number of intermediaries that leads to inefficiencies and result in higher costs. 
• Lack of Trust: Lots of intermediaries in carbon credit trading may lack trust as there is no information asymmetry and uncertainties in the credit’s provenance. 
• Delayed Transactions: Market complexity, third-party verification and auditing, infrastructure limitations in the digital platforms, manual processes and lack of standardized protocols and procedures in the carbon credit trading are some causes of errors and delayed transactions.

How Blockchain Resolves the Challenge:

• Peer-to-peer Trading: Blockchain-based carbon trading software enables direct peer-to-peer trading of carbon credits that streamlines the process and helps companies to contribute to a sustainable future. 
• Foster Trust: Blockchain provides a transparent and auditable record of each credit’s origin and transaction history. The immutability and transparency offered by this technology enhance the trust between buyers and sellers. 
• Immediate Settlement: Blockchain can significantly expedite transaction settlement in carbon credit trading through smart contracts. With its tamper-proof nature, Blockchain enables real-time exchanges of credits through carbon credit software that reduces delays and increased efficiency. 

Conclusion

Data stored on Blockchain’s distributed ledger system enhances trust among individuals, government systems, and public consumers related to the reported emission data. Such a level of transparency allows drivers to make informed decisions to promote sustainability. Blockchain undoubtedly resolves several challenges of the traditional carbon offsetting process. The technology helps complex industries like automotive achieve maximum transparency, traceability, and efficiency in the process.

If you, as a company owner, are looking for assistance to streamline the carbon offsetting process with the Blockchain, connect with Antier. We are a leading carbon credit platform development expert and innovator that helps build a technology-based solution that can help you achieve carbon emission reduction goals.